Precious Metals

     

 

 

Wrong-Way Event

Last week we said something that turned out to be prescient:

 

This is not an environment for a Lift Off Event.

 

An unfortunate technical mishap interrupted the latest moon-flight of the gold rocket. Fear not true believers, a few positive tracks were left behind. [PT]

 

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Bad Hair Day Produces Positive Divergences

On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week’s time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  – and China’s mandarins replied: just you wait, we can hurt our consumers just as badly!

 

Left: the US administration releases details of its upcoming domestic consumer mistreatment measures; Right: China immediately shoots back with an image of the infamous ankle crusher which it plans to unleash on its own population in retaliation.

 

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Small Crowds, Shrinking Premiums

The prices of gold and silver rose five bucks and 37 cents respectively last week. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?

 

Various gold bars. Coin and bar premiums have been shrinking steadily (as have coin sales of the US Mint by the way), a sign that retail investors have lost interest in gold. There are even more signs of this actually, and this loss of interest stands in stark contrast to the firm gold price. Of course, retail investors have generally very little influence on the gold price anyway – they only serve as a contrary indicator. [PT]

 

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Oil is Different

Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?

 

Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a few months at most. By contrast, gold inventories are in theory large enough to satisfy fabrication and industrial demand for 70 years (“in theory” because this is under the assumption that there is no monetary or investment demand for gold). This is in fact one of the reasons why gold is the money commodity. [PT]

Photo credit: Getty Images

 

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The New In Gold We Trust Report is Here!

As announced in our latest gold market update last week, this year’s In Gold We Trust report by our good friends Ronald Stoeferle and Mark Valek has just been released. This is the biggest and most comprehensive gold research report in the world, and as always contains a wealth of interesting new material, as well as the traditional large collection of charts and data that makes it such a valuable reference work for gold investors.

 

Nothing provides a feeling of material security comparable to the reassuring heft of a gold coin.

 

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Crude Oil Market Structure – Extremes in Speculative Net Long Positions

On May 28, markets were closed so this Report is coming out a day later than normal. The price of gold rose nine bucks, and the price of silver 4 pennies. With little action here, we thought we would write 1,000 words’ worth about oil. Here is a chart showing oil prices and open interest in crude oil futures.

 

WTIC (West Texas Intermediate crude) price and futures open interest – the vast increase in OI was largely the result of a breathtaking surge in speculative buying. [PT]

 

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Fun with Positioning and Sentiment

Last week we discussed the gold sector “conundrum” – the odd fact that there is apparently quite strong demand for gold despite a macroeconomic environment that would normally be considered quite bearish for the metal. Gold recently seems to have lost its last remaining inter-market “ally” if you will, as the dollar has begun to enter an uptrend as well. Positioning data in precious metals futures are nevertheless rather remarkable, given the relatively benign price action in gold and silver. The mood in the sector has turned quite gloomy for no obvious reason.

 

The Gloom Patrol is loose – the man with a plan (a certain Mr. Nobody) and his friend Agent ! only wanted to have some fun… but the gloom proved too strong. Take it from us, when someone says  “are we not proof that the universe is a drooling idiot with no fashion sense?”, then that person must have partaken of that pure, unadulterated gloom that is well-known to be the exclusive preserve of the genus gold bug.

 

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Gold Lending and Arbitrage

There was no rise in the purchasing power of gold this week. The price of gold fell $22, and that of silver $0.19. One question that comes up is why is the fundamental price so far above the market price? Starting in January, the fundamental price began to move up sharply, and the move sustained through the end of April.

 

1-month LIBOR (London Interbank Offered Rate – the rate at which banks lend euro-dollars to each other). LIBOR and GOFO determine the gold lease rate, which is indirectly reflected in gold futures prices along the curve as well.

 

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Moribund Meandering

Earlier this week, the USD gold price was pushed rather unceremoniously off its perch above the $1300 level, where it had been comfortably ensconced all year after its usual seasonal rally around the turn of the year. For a while it seemed as though the $1,300 level may actually hold, but persistent US dollar strength nixed that idea. Previously many observers (too many?) expected gold to finally break out from its lengthy consolidation pattern, but evidently the intense patience training session for gold bugs is set to continue for a while longer.

 

Luckless gold bug surrounded by false starts, with his only friend, a startled moose.

 

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Shill Alarm

One well-known commentator this week opined about the US health care industry:

 

“…the system is designed the churn and burn… to push people through the clinics as quickly as possible.

The standard of care now is to prescribe some medication (usually antibiotics) and send people on their way without taking the time to conduct a comprehensive examination.”

 

From the annals of modern health care… [PT]

 

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Waiting for Permanent Backwardation 

The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.

 

Lettuce hope this treasure is not cursed… but it probably is. [PT]

 

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Unfulfilled Prophecies

The price of gold fell $12 last week, but that of silver dropped 63 cents. What’s up with silver?! A prominent analyst wrote on April 19 of the “breakout” in silver. Of course, without the benefit of the basis and the Monetary Metals fundamental price, he could only see the price chart, plus the regular Wall Street indicators such interest rates, oil, and inflation.

 

A somewhat unsightly silver bar of historical interest, found in 1985 in the holds of the wreck of the Spanish galleon Nuestra Senora de Atocha, which sank near the Florida Keys in 1622. It was laden with silver the conquistadores had reportedly just stolen fair and square from Potosi in Bolivia. One presumes the perennially teetering on the verge of bankruptcy Spanish Crown was not very amused (34 of the bars belonged to the King outright, and he would have collected a 20% tax on the rest to boot). Anyway, lumps like this one don’t do breakouts; they do brick-outs and will hurt your toes if you’re not careful. [PT]

 

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

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